Ruth Lea: As growth falters, realism creeps into the green energy debate

Last week’s economic news was mixed, biased towards the negative. Starting with the good news, exports picked up in August, whilst imports fell back, resulting in a modest improvement in the trade balance. But one swallow doesn’t make a summer and given the downturn in our major export markets we are far from the much-desired export led growth projected by the OBR in March. Manufacturing slipped back in the month and unemployment jumped to 2.57 million (June to August) to a 17-year high.

Economic growth, or the lack of it, is back in the news with Mr Balls ever quick to condemn the “draconian cuts”, which are really rather modest – and necessary. The credit ratings of Spain and Italy have been wilting recently and I’m convinced ours would be too if there was a significant retreat from fiscal prudence. But the pressures are undoubtedly on the Government to “do something” about growth and many eyes will be focussed on the growth measures announced in the Chancellor’s Autumn Statement on 29 November.
 
It should, of course, be remembered that the March Budget was tagged as one “unashamedly about growth” but The Plan for Growth released at the time, jointly authored by the Treasury and BIS, was a tepid and unambitious affair. And even though I supported the Chancellor’s welcome announcement that an employee must work for two years rather than one in order to claim unfair dismissal, and pay a fee for taking a case to a tribunal, it should be noted that the volume of business regulations rises inexorably. Employers have faced yet another package of extra employment regulations since 1 October. In addition to the implementation of the EU’s Agency Workers Directive which may cost businesses £2bn a year, the default retirement age was finally abolished and the minimum wage increased. With apologies to Job, what the Government giveth the Government taketh away.

There is no serious tackling of the mountain of employment regulations which is such a burden for SMEs and a major disincentive to job creation. But I fear the coalition Government will be reluctant to challenge employee vested interests and little will be done – even though unemployment is now rising quickly.   

Turning to energy policy and growth, there are some reasons to hope that the Government may be modifying its position, though I do not expect a major U-turn. In his conference speech the Chancellor hinted strongly that British companies would not be sacrificed in the race to build a greener economy. He said that Britain would move “no slower, no faster than our fellow countries in Europe” and “we are not going to save the planet by putting our country out of business”. And there have already been some hints that George Osborne may unveil some support for energy-intensive firms, badly affected by rising energy costs, in the Autumn Statement.

Osborne’s comments were, however, not wholly novel and unprecedented. In May 2011 Chris Huhne stated there would be a review of policy “in early 2014 to ensure our own carbon targets are in line with the EU’s” when he released the details of the Fourth Carbon Budget. This Budget, for the 5-year period from 2023 to 2027, includes a target of a 50% reduction in CO2 emissions compared with the 1990 level. This target is yet one more step along the road to the overall objective of cutting carbon emissions to 80% of the 1990 level by 2050 – the almost complete decarbonisation of the economy. The implications for electricity generation, indeed the whole economy, are staggering to say the least.

And when mulling over the Chancellor’s comments about not putting the country “out of business” we should remind ourselves of the extra costs that DECC expects business, in general, and energy-intensive industries, in particular, to bear. In July 2011 DECC estimated that electricity prices for industry could be anything up to 52% higher in 2020 because of “green polices” compared with prices in the absence of such policies. (In 2009 the estimates of the green “add-ons” were, if anything, higher.) For chemicals and steel, for example, these are competitiveness-shredding, viability-wrecking increases in energy costs. They are more than enough to drive these industries to migrate overseas, along with their CO2 emissions – thus having zero net impact on global emissions totals. I shall await the Autumn Statement’s proposals on this sensitive subject with interest.

The Government’s international comparisons are still framed, of course, in terms of the EU.  As a member of the EU we are committed the Renewables Directive, behind our ruinous dash for wind, and the EU’s targets for cutting greenhouse gases - though it should be added that our targets are tougher than the EU’s reflecting some masochistic desire to lead the battle to save the planet from dangerous manmade global warming, insofar as it exists, even though others, even in the EU, may not follow.

But the EU is only part of the problem. A quick inspection of international data shows that we are but a bit player in the world of manmade carbon emissions. UN data show that China was by the far the largest emitter in 2008, responsible for over 23% of the total, followed by the USA (18%), India and Russia (nearly 6% each), Japan (4%) and Germany (nearly 3%). We rolled in in 9th position with 1.7% of total emissions. The EU27 in total was responsible for 14% of emissions. Moreover, given the rapid increase in China’s emissions their lead is probably significantly greater now. Indeed I would not be surprised if the increase in China’s emissions since 2008 exceeds our total annual emissions. The futility of our green posturing would be almost bearable if it were not damaging business and pushing people into fuel poverty. It is difficult to think of a more contrary policy, all the more insufferable given the sanctimonious and accusatory tone in which this topic is so frequently discussed.